If you received $50,000 as a gift (I wish that happens to me), what would you do with that money? Your decision on this will reflect on your financial future of who you become, and how you look at money.
a. save it in the bank
b. buy a nice house or a nice car
c. quit your job or take a long vacation
d. invest it and make it grow
Whatever your decide, it is up to you. Different people have different views on money, some believe that:
(a) It will be safe in the bank, as people want to save money in case something happens, like an emergency, or a sudden lay-off from work. They always want to expect the worst in the future, and thus they will not have a difficult time financially if a problem happens. Moreover, banks also give a minimal interest rate on savings accounts, which thus puts a smile on people’s face.
For most people, they will agree that this is the best decision to make. Your parents and friends will be proud of you that you chose to do this over something else that is stupid.
(b) a house and a car would be 2 of the most expensive things an average person purchases. with this sudden splurge of money, wouldnt people want to enjoy this money and reward themselves with something to make them happy? moreover, people can them show off to their friends on what they can do with so much money. this is one of the biggest problems of having too much money! a lot of people have financial problems of having little money, but many then also have problems of too much money. they will end up on spending it all, and fall back from losing the $50,000, missing the financial status they had in the past. maybe some of these people wont even have enough money to put gas in their new sportscar they just purchased, or wont be able to pay their monthly dues on the car.
(c) with this big amount of money, people might think that they dont really need to work anymore… temporarily. well yes, $50,000 is already more than the average salary of the person in a year, and now they just received it in one day! why should you continue to work for $10/hour where you got a load of money with you?
employees that earn a good $10/hourwill look back again and realize how small money theyre making. some will quit their jobs, and enjoy the money they have. after a while, they spend all their money (on vacations, fine-dine restaurants, road-trips, partying), and dont want to go back to their original lifestlye. $10.hour would be something small for them.
(d) this is where the “rich” people fall into. for employees, your monthly paycheck earns you a living, and your lifestyle reflects on that number that is written on that piece of paper you receive twice a month. create passive income, money that is put into your pocket whether you work or not. create an investment vehicle, that where you can put that $50,000 into, and make it more! it WILL be risky, and you WILL fail several times, but failing makes you a better investor. you may lose part of the money, but giving up will just leave you with (a), (b), and (c).
you can put that money that you received into real estate investing (my favorite), create businesses (food business, online business, general merchandise, joint ventures, etc.), or paper asset investing (stocks, bonds, mutual funds, collectibles, commodities, part-ownership of businesses, etc.). with good research and due diligence of the investment vehicle you may choose, you can minimize risk, and thus be happy with your decision with what you did with you money!
To sum it all up, your financial future WILL REFLECT ON YOUR ANSWER ABOVE. Just that simple decision will change EVERYTHING on how your future will be. Its just a matter of switching views that will change it; just a simple decision.
Chris Angeles is a young entrepreneur, very young one at the age of 20. He learns more from experiences in the business world and making mistakes rather than from learning everything from school and entering the corporate world. Well he has been doing real estate lately, specifically investing in an apartment building. Learn more about him and check his daily blog on his ventures at http://csa.typepad.com
Tags: business, entrepreneurship, financial, investing, money, real estate, rich, stocks, wealthybusiness, entrepreneurship, financial, investing, money, real estate, rich, stocks, wealthyShare This
If you search the internet for “passive income”, you may find a definition or two, but mostly, what you find are websites trying to sell you on the passive-income-flavor-of-the-day. It’s frustrating, I know. I don’t know about you, but before I jump into any opportunity or even before I take a trip, I like to do my research. That being said, there are a lot of good opportunities out there. But before you start spending money, let’s discuss what passive income is and, most importantly, what it isn’t.
Webster’s dictionary defines passive income as “of, relating to, or being business activity in which the investor does not have immediate control over income”. I don’t think that tells the whole story. Passive income is money that you receive over and over again without having to do much work (notice I didn’t say “any work”). It is different than earned income in that you are not receiving money for your time (like you would a job). But depending on the passive income stream that you choose, you may in fact have immediate control over your income. But I’ll get to that later.
Why would you want passive income? Well, like Robert Kiyosaki explains in his book Rich Dad Poor Dad, that is the main difference between the rich and the middle class. The rich invest their money in various passive income streams. When their passive income exceeds their expenses, then they are financially free. “Financially free” simply means that you do not have to have a day job to pay your expenses. And you are “free” to then do whatever you want!
What Passive Income Isn’t
Before I go into telling you what passive income is, let me first tell you want it isn’t. Passive income is not the same thing as “residual income”. Residual income is money that you receive on a regular basis after having done work once. The best example would be TV sitcoms. Some actors get “residuals”. Actors get paid for filming the show. Afterwards, some actors get paid each time the show repeats. Sales people that sell services, subscriptions, or renewable products (like insurance) sell that item once and, providing the customer renews, will get a commission off of each renewal. Royalties from the sale of books and music are also residual.
Many say that multi-level-marketing or network marketing sales provide you with passive income. Guess what? That’s residual too.
If you have a small business or are self-employed, even if you are making a lot of money, this is NOT passive income. If you receive a salary from your business, that is earned income. There is a way to turn this into passive income, however - so stay tuned.
You know, I have to say that starting your own website cannot be passive income. Whether you are selling a product (such as an eBook, seminar or other information) or a service, you still have to market your website. You will have to do this regardless of whether you are selling your OWN products or have the rights to sell other’s products. Marketing your website is work, simple as that. But it’s not a job. And once your marketing efforts start taking off, you can make a lot of money with little additional effort. But that is residual in my book, not passive.
What Passive Income IS
Passive income is a lot of things. The first thing that comes to mind, and also, I believe, the most popular example is real estate. If you own investment property and are getting a positive cash flow from a house, commercial property, or apartment, that is passive income. If you rent rooms in your house, that’s passive income too. You only have to set this up once, and then the income comes in month after month. Interest income from savings accounts, CDs, and money-market accounts are passive - the bank pays you for keeping your money in those accounts. If you have a website with banner ads or Google Adsense ads, that can be called passive as well.
If you invest in any business, but don’t manage it, your profits are considered passive income, exactly what Webster was thinking about when he wrote the definition.
What about business? Well, that depends on how you set it up. Rich people create businesses and set up a system that the business follows. That way, if the owner goes on vacation for a month to Fiji, the employees follow the system and the owner still gets the profits. Any business will of course start out with a lot of work, but if you take the time to set up a business so that it gets reproducible results (exactly like a franchise), those profits become passive. And, according to the IRS, any salary you get from your business is considered “earned” but profits are considered “passive”. It is vital when starting a business to check with an accountant and an attorney to set up your business that financially benefits you the best.
What else can be considered passive income? How about self-storage facilities, parking garages/lots and dry cleaners! They all require some time to start up, but once they are set up, you collect money over and over again.
Residual vs Passive Income
Residual and passive income are like siblings. They are both very similar and most people really consider them synonyms. What does it matter, anyway? They are both excellent ways to get money in your hands month after month after month without trading your time or your freedom. How can it get better than that?
Reality Check
Beware of anyone that tells you that there is NO work involved in passive income. Passive income does not mean no work! If you are going to invest in a business, a stock, or a real estate property, you will have to do your research (this is called “due diligence”). Research is work! You will also be required to manage your investments, to check up on their progress and make changes as necessary. That’s work too!
The good news is that research and management is only a part-time endeavor. And most of the time, that work can be done from almost anywhere, including on a beach in Fiji.
Let us not forget the FUN factor. I’m sure there are some of you reading this who like, even love their jobs (if you still have one). Some of you have your own business - and congrats to you! But most of us are in jobs just because we need to feed our families and pay the bills. Looking into passive income streams and investing your time and money can bring you many, many returns. Researching for and implementing your passive income plans so that you can live your dreams is FUN. Getting money every month, week, or even every day is FUN. And trying out new strategies and managing your money - when you have some to manage - is FUN.
I hope I’ve done my job and given you the passive income basics. If you have any questions or thoughts, feel free to contact me through my website. I’d love to hear from you!
A. Annika Smith is the of “Room 4 Rent: How To Turn Your Extra Rooms Into Extra Money!”, the only real estate book of it’s kind. She helps others quickly earn passive income by renting out rooms with little money to start so that they can save their home or realize their dreams. Check out free content at her website at http://cluestocash.rentrooms4cash.info.
Tags: business, finance, financial freedom, money, passive income, real estate, residual incomebusiness, finance, financial freedom, money, passive income, real estate, residual incomeShare This